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    CH03_Blue Ocean_EL

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    CH03_Blue Ocean_EL

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    RESEARCH NOTE 4.

    3 Blue Ocean Innovation Strategies


    For the past decade INSEAD professors W. Chan Kim and Renée Mauborgne have
    researched innovation strategies, including work on new market spaces and value
    innovation. Their most recent contribution is the idea of Blue Ocean Strategies.
    By definition, Blue Ocean represents all potential markets which currently do not
    exist and must be created. In a few cases whole new industries are created, such
    as those spawned by the Internet, but in most cases they are created by
    challenging the boundaries of existing industries and markets. Therefore both
    incumbents and new entrants can play a role.
    They distinguish Blue Ocean strategies by comparing them to traditional strategic
    thinking, which they refer to as Red Ocean strategies:
    1. Create uncontested market space, rather than compete in existing market
    space.
    2. Make the competition irrelevant, rather than beat competitors.
    3. Create and capture new demand, rather than fight for existing markets and
    customers.
    4. Break the traditional value/cost trade-off: Align the whole system of a
    company’s activities in pursuit of both differentiation and low cost. In many cases
    a Blue Ocean is created where a company creates value by simultaneously
    reducing costs and offering something new or different. In their study of 108
    company strategies they found that only 14% of innovations created new markets,
    whereas 86% were incremental line extensions. However, the 14% of Blue Ocean
    innovations accounted for 38% of revenues and 61% of profits.
    The key to creating successful Blue Oceans is to identify and serve uncontested
    markets, and therefore benchmarking or imitating competitors is counter-
    productive. It often involves a radically different business model, offering a
    different value proposition at lower cost. It may be facilitated by technological or
    other radical innovations, but in most cases this is not the driver.

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